Here Are The Trajectories Of The 10-Year Yield During The Last Nine Recoveries

Students of economics 101 are taught that economic recoveries come with rising interest rates, which means bond prices are falling. This is why people are a bit confounded by the fact that interest rates have remain subdued five years into the current recovery.

However, you’d actually have a hard time seeing a pattern of rising rates during recoveries in recent history.

Jan Loeys of JP Morgan’s global asset allocation team explains.

“Bonds tend to have a hard time selling off if central banks are not tightening,” he said. “The steadily lower growth rates over the last 3 recoveries have induced steadily lower policy rates, which in turn have created faster and a greater number of asset bubbles that have been imploding before inflation has a chance to accelerate and central banks can move into a tight stance.”

Things just aren’t as simple as you’re taught in entry-level economics.

“Chart 2 shows how in the last 3 cycles, US bond yields are no longer rising through the economic expansion.”

Take one look at this chart and you’ll appreciate that the relationship between interest rates (like the 10-year Treasury yield) and economic growth is not a simple one.